Xerox fights back after downgrade

By Simon English in New York

12:01AM BST 03 May 2002

XEROX became embroiled in a row with one of Wall Street's top rating agencies yesterday as it sought to defend its financial position.

Moody's Investors Service downgraded Xerox's bonds, already classified as "junk", another four notches. Xerox shares tumbled $1.06 to $8.01 on the news, leaving the once iconic photocopier maker valued at $5.8 billion. The shares hit an all-time high of $63 in January 1999.

Moody's cut its rating on $9 billion of bonds, leaving some of the company's debt rated at Caa1, the seventh worst junk level out of 11.

The ratings agency is concerned about Xerox's lack of cashflow compared with its massive debt levels. Xerox's copier business generated $374 million of cash last year, half the previous year's amount.

Xerox chief executive Anne Mulcahy complained about the move, calling it "inconsistent with the company's progress and momentum".

Moody's is anxious about Xerox's need to raise further cash to pay for a massive restructuring. Xerox will also find it hard to improve sales "given the stiff competition and depressed corporate IT spending levels", it said.

The downgrade immediately affects a $290 million loan, which Xerox may have to repay at once unless it can agree a deal with the lender. It is trying to renegotiate the terms on $7 billion of bank debt due to be paid by October.

The company was forced to admit in regulatory filings last week that if it cannot persuade lenders to offer better terms it could go out of business altogether. Xerox said it is confident it will have a deal with the 57 banks involved by June.

Mrs Mulcahy has been battling to save Xerox since last August when she became chief executive. Reports that Xerox once flirted with bankruptcy are dismissed by the company as exaggerated.

After Carly Fiorina at Hewlett-Packard, Mrs Mulcahy is probably the most famous woman in American business and one of the few to lead a top company.